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If
you are a taxpayer, make sure you consider using your
Individual Savings Account (ISA) options. Investments
held within the ISA wrapper are free of income tax
and capital gains tax. A Maxi ISA permits you to invest
up to £7,000 in stocks and shares during this current
tax year (2002/03) and extends through to the 2005/06
tax year.
Use
your Capital Gains Tax allowance
You
can make capital gains of £7,700 on the disposal of
assets and investments in the current tax year (2002/03)
without paying tax. Everyone has their own allowance,
so a couple could between them make up to £15,400
of gains before any capital gains tax (CGT) would
be payable. If you have larger profits, you could
make the most of this allowance by considering selling
some of your holdings, up to the £7,700 limit, to
reduce your potential future tax liability.
Personal allowance
In
the current tax year (2002/03) the Inland Revenue
allows everyone to receive income of up to £4,615
before income tax is payable. If your husband or wife
is in a lower tax band than you, you could pay less
tax by transferring cash, savings and investments
into your spouse's name.
VCTs
and EISs
If
your attitude towards investment risk is at the higher
end of the spectrum, then a Venture Capital Trust
(VCT), which invests in a portfolio of small, often
early-stage enterprises, can offer attractive tax
benefits. You can defer payment of any CGT you owe
by investing an amount equal to the chargeable gains
made within the period running from the 12 months
before the gain is made to the 12 months after into
new issue shares in a VCT. The CGT deferred is not
paid until these shares are sold and gains on the
VCT shares themselves are tax free within the £100,000
limit (see below). Dividends are tax free from all
VCT shares within the £100,000 limit and you receive
up to 20% income tax relief on the first £100,000
invested in new VCT shares in a tax year if you hold
the shares for at least three years and they were
bought after 5 April 2000.
An
Enterprise Investment Scheme (EIS) offers similar
tax incentives (dividends are not tax free and gains
are only exempt after 3 years), but has a higher total
upper limit of £150,000 per tax year. An EIS invests
in a single business in contrast to a VCT, which can
invest in many companies.
The Financial Services Authority
does not regulate taxation advice.
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